Consumer Federation of California

California Insurance Commissioner Dave Jones denied Blue Shield of California’s plan to close several of its health policies to new customers, saying it violated state rules designed to protect consumers from large rate increases.

Regulators routinely scrutinize efforts by health insurers to stop enrollment on some policies because the pool of existing customers can face escalating premiums as policyholders get older and incur more medical claims, without healthier applicants to offset those costs.

Critics refer to this scenario as a "death spiral," when rates rise sharply for existing customers. Jones said consumers "should not have to worry that their health insurer will make decisions to open new products and close others in ways that put the policyholder at risk of being pooled with unhealthy lives whose claims costs are likely to cause premiums to increase."

Blue Shield, a nonprofit insurer with 3.3 million members statewide, had proposed closing off new enrollment on 22 health plans with about 152,000 customers. Meanwhile, the company plans to begin selling several new policies regulated by the California Department of Managed Health Care.

"Nobody is being forced to change plans," said Blue Shield spokesman Steve Shivinsky. "There will be no ‘death spiral’ in rates, and there was no ‘death spiral’ in rates the last time we stopped selling plans to new people."

Blue Shield said it would work with the insurance department on a "pooling plan they find acceptable."

This proposed move by Blue Shield was the subject of a lawsuit filed last month in San Francisco Superior Court by Consumer Watchdog, a Santa Monica advocacy group. Jerry Flanagan, staff attorney for the group, praised the insurance commissioner’s decision Tuesday, but he said the suit still accuses Blue Shield of illegally closing eight plans in 2010.

Blue Shield said it has complied with all applicable laws.